Managerial Accounting Report: Financial Statement Analysis Techniques

This report provides an overview of financial statement analysis, focusing on two key techniques: common size financial statements and trend analysis. It begins by defining and comparing common size financial statements, which express financial data as percentages of a base number, to dollar amount statements, which present data in their economic value. The report highlights the advantages of common size statements, particularly their utility in comparing a firm's performance against competitors of different sizes. The report then explores trend analysis, emphasizing its importance in assessing a firm's asset growth over time, especially for businesses with significant upfront investments. The report emphasizes how trend analysis helps stakeholders, including investors, understand a business's performance over time, facilitating informed decision-making, and maintaining transparency. The report concludes by reiterating the benefits of these techniques in evaluating a firm's financial health and performance.

MANAGERIAL ACCOUNTING
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Table of Contents
Introduction:....................................................................................................................................3
Comparison between Common Size Financial Statement and Dollar Amount:..............................3
Importance of trend analysis of financial statements:.....................................................................3
Conclusion:......................................................................................................................................4
References:......................................................................................................................................5
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Introduction:
Measuring performance of a firm is necessary to analyze its position in the market. Here, two
methods of measuring performance of the firm, the common size financial statement and trend
analysis, are discussed.
Comparison between Common Size Financial Statement and Dollar Amount:
The common size financial statements indicates that the financial statement which is presented as
a percentage of base number (Weygandt et al.2015). For instance, in a common size financial
statement the expense and revenue is expressed as a portion of the net sales. Similarly, in a
common-size financial statement, every asset, the equity amount and the liability is presented as
a percentage of total assets. On the other hand, the dollar amount statements describe the assets
and liabilities in their economic value instead of expressing those in terms of a base value.
The common size financial statement is considered as more useful for the organizations than the
dollar amount statements. The common size financial statement has many advantages over those
expressed in dollar amounts. The common size statements help businesses to analyze their
performance against its competitors (Edmonds et al. 2016).Analyzing the competitor is
important for the businesses as it facilitates the organizations to realize their position in the
market. However, comparing the business with similar sized organizations is not enough in all
cases. The larger and smaller companies too can be the competitors of a particular business, but
analyzing the performance with respect to other companies of different sizes is quite difficult.
For instance, comparing the performance with a smaller business becomes easier for an
organization as all the information is expressed as percentage, instead of dollar amounts. Clearly,
such comparison may not be possible in case of dollar amount statements as the amount of assets
is not same in case of large and small organizations.
Importance of trend analysis of financial statements:
The trend analysis indicates that how the assets of a firm grow over time (Kim et al. 2017). In a
competitive environment, analysis on the asset growth is quite important. The analysis on asset
growth becomes even more critical in case of those organizations which require upfront
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investments. The organizations in the oil and gas industry fall into the category. The trend
analysis states if an organization is managing its assets and investing the money in a wise way
(Park & Jang, 2014). Analysis on the trends, profit margin and return on equity indicates how the
business is operating over years. Analysing the trend of the accounting items which are used as
benchmark demonstrates performance of the organization over years.
Trend analysis helps the public to know the activities of a business over a period (Handy &
Polimeni, 2017). The trend analysis helps businesses to maintain transparency in their activities.
The trend analysis is a useful source of information for the investors. As the report contains
financial data for several years, the investors get a clear idea on how the business is performing
and can make better decisions.
Conclusion:
The current discussion indicates that use of common size financial statement help businesses to
compare their performance with other businesses of different sizes. Analysis the trend of
financial statements is another useful technique to know performance of the business over time.
The information obtained from trend analysis help the investors to make decisions.
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References:
Edmonds, T. P., Edmonds, C. D., Tsay, B. Y., & Olds, P. R. (2016). Fundamental managerial
accounting concepts. McGraw-Hill Education.
Handy, S. A., & Polimeni, R. S. (2017). Concept Mapping-A Graphical Tool to Enhance
Learning in an Introductory Cost or Managerial Accounting Course. Journal of the Academy of
Business Education, 18.
Kim, M., Schmidgall, R. S., & Damitio, J. W. (2017). Key Managerial Accounting Skills for
Lodging Industry Managers: The Third Phase of a Repeated Cross-Sectional Study. International
Journal of Hospitality & Tourism Administration, 18(1), 23-40.
Park, K., & Jang, S. (2014). Hospitality finance and managerial accounting research: Suggesting
an interdisciplinary research agenda. International Journal of Contemporary Hospitality
Management, 26(5), 751-777.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & Managerial Accounting.
John Wiley & Sons.
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